Multinationals’ Preferred Status Challenged in China

By Roy Maurer Aug 2, 2013

Companies from all over the world are eyeing China’s incredible economic growth and seeking to get in on the action. China’s talent landscape is evolving as fast as its economy and shaking up the traditional preferred-employer structure, according to a recent report from global HR consultancy Aon Hewitt.

State-owned enterprises—once the only game in town—have been transforming themselves to compete with the growing privately owned companies and multinationals. All three employer types are competing fiercely for the country’s talent across industries.

“Fast-growing and forward-thinking Chinese companies are raising the bar in attraction and retention by developing a range of innovative strategies,” the report said. For multinationals that means that finding new ways to compete with their Chinese competitors is critical. According to Aon, multinationals are the preferred employers in eastern China, including Shanghai, but the challenges they face in attracting and retaining high-skilled professionals are increasing rapidly.

SOEs and POEs

State-owned enterprises (SOEs) like China Mobile and Bank of China are the employer of choice in northern China, including Beijing, according to Aon. SOEs can provide a broad career platform, high pay and valuable benefits, such as housing and cars. They can also offer “much sought-after entry to the career path provided by the Communist party,” the report said.

“SOEs basically offer opportunities for both careers and political life,” said Peter Zhang, the head of compensation practice at Aon Hewitt in China.

Privately owned enterprises (POEs) are springing up across the country and are especially popular in the south, according to Aon. They are seen to be “more flexible, more modern and more aggressive.” Companies such as global tech-solutions provider Huawei have become well-established abroad, so they can offer employees an international career platform. Because of this and a clear, fast career path, POEs have become especially popular with China’s Generation Y.

Multinationals Are Vulnerable

Multinational corporations lead in terms of the amount of pay they offer, but when it comes to total rewards—cash, benefits, career plan—the complete package is often perceived as less valuable than those provided by SOEs and POEs, said Zhang. Career opportunities at multinationals are often considered dull in comparison with those at Chinese companies, making the former vulnerable to poaching.

Despite being perceived as having low career opportunities, multinationals offer training programs that younger workers view as valuable. “They are still the leaders when it comes to internal training programs and have very strong middle levels of management, which are used to coach, supervise and mentor younger employees,” the report said.

Multinationals on the Move

Salary increases across China are another challenge for multinationals, sending some in search of cheaper talent pools. Ten years ago, compensation in China’s Tier 1 cities—Beijing, Shanghai, Guangzhou—was meager compared with non-China markets. Now total compensation for local C-suites and senior vice presidents is similar to what’s offered in Japan or Western Europe, pushing multinationals into Tier 2 and Tier 3 cities, according to the report.

When multinationals move to Tier 3 locations, they find a smaller talent pool and end up paying more to persuade desirable employees to relocate. “Workforce stability is also an issue—as soon as the talent gets better offers closer to home, many leave,” the report said.

In some cases multinational corporations have moved out of China entirely, according to the report. These include companies that used China solely as a manufacturing center.

“For them, cost effectiveness is really the key, and when labor costs increase to very high levels without a parallel improvement in productivity, it is natural that they move out of China to lower cost centers such as Vietnam, Cambodia or Bangladesh.”

Recent reforms to China’s labor laws have persuaded some companies interested in the lack of worker protections to look elsewhere, too, the report said.

The Way Forward

To succeed in attracting and retaining valuable professionals in China, multinationals need to develop a “meaningful employee value proposition that is clearly communicated and measured to demonstrate the company’s commitment to its employees,” the report said.

Multinationals must create competitive talent management programs aimed at attracting and motivating ambitious young workers and engaging midcareer individuals. What’s more, they’ve got to keep things exciting for Generation Y.

“To compete effectively, multinationals need to think about how to leverage their global opportunities, for example, by rotating their China talent around the globe, giving them more opportunities in other parts of the business and outside China,” the report suggested.

Roy Maurer is an online editor/manager for SHRM.

Follow him @SHRMRoy

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